KUALA LUMPUR: Borrowing costs will remain unchanged for the rest of the year with Bank Negara Malaysia’s latest policy decision to stand pat.
As widely anticipated by the market, the Overnight Policy Rate (OPR) was left unchanged at 3.00 per cent yesterday by the Monetary Policy Committee in its last meeting of the year.
But economists, noting the cautious note, expect the central bank to hike the key interest rate in the first quarter of next year.
The central bank said the current level will ensure the domestic economy continues on a steady growth path.
The risk of destabilising financial imbalances has been contained, Bank Negara said in a statement. Inflation is expected to remain stable next year on the back of low global energy and commodity prices.
For the year, headline inflation is expected to be at the lower end of the 2.0 to 2.5 per cent projected range.
OCBC Bank economist Wellian Wiranto said the recent global
currency volatility would likely have played into the consideration.
“Like most of us, the central bank appears to be grasping for a sense of how president-elect Trump would shape the global growth outlook and the implications for Malaysia’s own economy, and therefore its policy rate path,” he said.
“Given that much is still not known until he takes office, it re mains unlikely that BNM would
be comfortable easing its OPR in
the next meeting ending January
19 next year, coincidentally just
one day before Trump’s inauguration.”
UOB Bank said odds of a cut have eased and projects OPR to remain on hold next year.
Meanwhile, Bank Negara said ongoing infrastructure investments and capital expenditure in the manufacturing and services sectors will support growth, while exports are expected to expand, placing the economy on track to expand as projected this year and next.
In its latest analysis, the central bank said the private sector will be the main driver of growth with support from wage and employment growth as well as disposable income.
It said the volatility of the ringgit is due to continuing uncertainties in global economic and policy environment and geopolitical developments.
These factors could result in periods of volatility in the regional financial and foreign exchange markets, it added.
The central bank will continue to provide liquidity to ensure the orderly functioning of the domestic foreign exchange market.
The capital market remains accessible, deep and liquid, while
the banking system’s liquidity is ample.
“Financial institutions continue to operate with strong capital and liquidity buffers and the growth of financing to the private sector is consistent with the pace of economic activity,” Bank Negara added.
The new schedule of meetings
for next year was also released yesterday.